Justice Committee

Meeting date: Tuesday, October 31, 2017

Official Report 586KB pdf

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Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill: Stage 1

Agenda item 2 is our evidence-taking session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 1, which is a note by the clerk, and to paper 2, which is a Scottish Parliament information centre paper.

Today, the committee will take evidence on two bills, so time is tight. I welcome our witnesses for the first evidence session: Sheriff Principal James Taylor, author of the independent report that preceded the bill; and Elaine Samuel, who is an honorary fellow at the University of Edinburgh and who supported Sheriff Principal Taylor’s review group. Thank you both very much for attending today.

We will move straight to questions, starting with Liam Kerr.

I declare an interest up front: I am a practising solicitor and a member of the Law Society in England and Wales and the Law Society of Scotland.

The Scottish Government has stated that the bill’s primary objective is to address access to justice. How far do the recommendations in your report go towards tackling that issue?

There are two main elements for consideration today that, in my submission, will improve access to justice. The first is the facility to make damages-based agreements available to solicitors rather than continuing in the present fashion, which is for solicitors, wearing a second hat, to form their own claims management company and offer damages-based agreements. The other element relates to qualified one-way costs shifting.

As far as damages-based agreements are concerned, I would be surprised if there was a material increase in the number of cases being brought to the court or of complaints being made to the compensation recovery unit. The reason I say that is because we do not need to predict what damages-based agreements will do to the legal landscape in Scotland—they are here, alive and kicking.

In order to make sure that I had not fallen too far behind current affairs in my four and a half years of fallow, I made inquiry of one firm of solicitors that has its own affiliated claims management company to ascertain the volume of such work that it is doing. In the past three years it has signed up 17,600 new damages-based agreements—the five-year figure is 23,800. I have seen the transcripts of the committee’s earlier evidence sessions covering the increase in registrations with the CRU and so on, and that will almost certainly be the explanation for that. DBAs are out there and the public are enjoying the benefit of them.

I should say that, in that same three-year period, 14,000 cases were settled. That is because damages-based agreements do much more than give access to the courts—they give access to negotiation.

Thank you. We will come back to a few of those matters. Is there a danger of our conflating access to justice with access to the courts, which is a different concept?

The ultimate arbiter of justice is the court.

But is it not the case that we talk in general terms about access to justice when what we mean is access to the court—not to the right result? If we equate justice with the result that people seek, which might be a myriad different things—

Access to justice is about enabling members of the public to know what their legal rights are and to exercise those rights. That may require recourse to the courts, but more often than not, it does not, as most disputes are resolved by way of negotiation. If a member of the public is not properly advised as to how to go about the negotiating process, or, perhaps worse, does not even know of their legal right, that is a denial of justice.

On access to justice, if the legislation is flawed and some of the provisions are in fact disadvantaging the pursuer, is Liam Kerr’s question not valid? There has been access to court, but at the end of the day, justice was not seen to be done.

If the legislation is flawed, one has to put it right. I am not sure what point you are seeking to make.

As we continue our lines of questioning, we will cover provisions that you recommended, which are not in the bill, which at the very least could have improved it. By that definition, access to justice has not been achieved in the way that it possibly could have been.

I would always be happy for any of my recommendations to be implemented.

The Justice Committee heard previously that a great deal of your report was based on Department for Work and Pensions data, which showed that between 2008 and 2011 the number of claims registered in Scotland rose by 7 per cent, compared with the 23 per cent by which it rose in England and Wales. The report concludes from that data that there is an issue with access to justice.

The same data shows that, between 2011 and 2016, in Scotland the number of compensation claims increased by just over 16 per cent, whereas in England and Wales the figure appears to have decreased by 4.5 per cent. Does that change your view of the recommendations that you made in 2013? Given that data, are your conclusions and recommendations on the lack of access to justice still valid?

That data does not change my conclusions at all. I was aware of the figures. Earlier, I sought to explain—perhaps rather inelegantly—that there has been an increase in the number of claims, but that that is almost certainly because, in the past five years, damages-based agreements have become a common way of funding a party who is seeking to exercise their legal rights.

You mentioned the figure of 16 per cent. I cannot say whether this is the case, because I have not done an analysis, but it would not surprise me at all if that increase occurred as a result of the popularity of damages-based agreements, which is evidenced by the figures that I gave from one firm: 17,600 claims in three years is a lot of damages-based agreements to enter into.

Good morning, sheriff principal. What advantages do damages-based agreements have that justify overturning the traditional prohibition on their use by lawyers?

If damages-based agreements are as popular as I have just indicated that they are, it would be legitimate to ask why we need all this. We need all this because, at present, they are completely unregulated. They are being offered by claims management companies, which, as we know, are currently unregulated. My report recommends that damages-based agreements should be permitted to be entered into only by regulated bodies, and I would like the bill to contain such a provision.

The lack of regulation has two major impacts. First, the percentage that the solicitor or claims management company—they are one and the same—can take is unlimited. I understand that the present rate can be anywhere between 15 and 20 per cent of all damages, including past and future loss. I know of one firm that uses a taper, which is what I recommend should be deployed, whereby the rate falls down to 2.5 per cent at the upper levels.

The other mischief that requires to be addressed—I am pleased to say that the bill addresses it—is that, at present, there is no clarity on what “no win, no fee” actually means. Different offerers of DBAs use different definitions of what “no win, no fee” means. For example, who will pay for the medical reports? Who will pay for the court dues? Who will pay for the expert who will inevitably be required? I wanted there to be a level playing field, whereby the solicitor would have to pick up all those costs, save only for any after-the-event insurance premium. That would mean that a member of the public could go to two or three providers and get directly comparable quotes. The last thing that I would like to see is a Gocompare for claims management companies.

Rona Mackay’s question will probe damages-based agreements a bit further.

Good morning. Sheriff Taylor, you briefly mentioned future loss. Can you explain the reasoning behind your recommendation not to protect damages for future loss from inclusion in the success fee calculation in most cases? Will that lack of protection for compensation for future loss leave pursuers worse off if they pursue an action under a damages-based agreement?

10:15  

At present, the success fee that is deducted from future loss is between 15 and 25 per cent; indeed, I heard yesterday that one firm is charging 33 and a third per cent.

The public, notwithstanding what might appear—to me, at least—to be rather generous terms for solicitors, are still entering into those agreements. They do so because the agreements are simple, they understand them and they know precisely what the outcome is going to be.

I included future loss in the calculation of the success fee because to do otherwise provides an in-built incentive to solicitors to delay proceedings. The longer someone waits to get their decision, the greater their past loss will be and the smaller the future loss will be. We do not need incentives for delay.

Further, it is usually the tricky cases that proceed to court. Very often, future loss is the sticking point that prevents a settlement from occurring. It is at that point that the solicitor and the lawyer—counsel are usually involved if it is in court at that level—start to earn their corn. I think that they are entitled to be rewarded for that work.

The vast majority of claims settle. They usually settle on a lump sum, because a broad-brush approach is taken to the negotiation. There is no definition of past loss and future loss. If a case settles at the door of the court, you can bet your bottom dollar that there is no consideration of past and future loss—there is just the lump sum that the insurer is prepared to pay, and the pursuer is prepared to accept, in order to get rid of the claim.

When I was going round during the consultation period, one firm of solicitors told me of the problem that arises when there are multiple pursuers. For example, a family is injured in a road accident and the insurer of the driver of the car at fault simply says, “Here is a large sum—divvy it up among yourselves”. As the solicitors told me, it would be hard enough to divvy up a sum among the individual members of a family, but it would be even harder if they had to start working out not just what each member was entitled to but what their future and past losses were. That is looking at it from the solicitor’s point of view.

Few if any judges would claim that their awards for future loss are accurate to 2.5 per cent. They are not. Furthermore, few care plans are implemented to the letter, and it is the care plan upon which the future loss is predicated. The care plan ends up not being followed for a whole raft of reasons. Those might be social reasons—the family circumstances change or they have to move house; sometimes, there are medical improvements that make life much simpler for the particular handicap for which an award is being made. The 2.5 per cent is not going to make a material difference to the manner in which a pursuer is cared for post-accident, and one ends up with a balance. It is a loss of 2.5 per cent, but it provides access to justice—97.5 per cent of something is better than 100 per cent of nothing.

The evidence that we have is where I started. Damages-based agreements are popular with the public, even though they might end up paying 20 or 25 per cent of their future loss to their solicitor. I know that the position in England and Wales is different and that Lord Justice Jackson recommended in his report that future loss should not be included in the success fee. However, Lord Justice Jackson had second thoughts on that—very much so—and in one of the lectures that he gave post the publication of his report, he said:

“ring-fencing damages in respect of future loss was out of deference to the vociferous submissions of The Personal Injuries Bar Association (PIBA), The Association of Personal Injury Lawyers (APIL) and others”.

Thus, it was not as a result of the application of principle, but because the pursuers’ solicitors lobby wanted future loss to be excluded. They changed their minds and wrote to Lord Justice Jackson, sending what he subsequently described to me as forceful submissions that a deduction should be made. I met Lord Justice Jackson. What he and I said remains in confidence, but it would be a surprise to me if there would have been the same regime in England and Wales had it not been for the attempts by APIL and PIBA to persuade him that future loss should be excluded. He has explicitly said, “I deferred to them.”

Thank you for that full answer. Can I ask you to clarify, very briefly, in relation to the second part of my question, that you do not think that pursuers will be worse off if they pursue an action under the bill?

Under what I recommend they will be a lot better off because they will not be suffering 25 per cent deductions—they will be suffering 2.5 per cent deductions.

Can I just clarify whether that just applies to awards of more than £500,000, and that anything less than that—which perhaps does not happen very often—would not be protected in that way?

No, no. My proposal was that on the first £100,000 the deduction would be 20 per cent; between £100,000 and £400,000 the deduction would be 10 per cent; and if the award was above £500,000 the deduction would be 2.5 per cent.

Right. We may be looking at some of the regulations that the Government is proposing, because I do not think that that is in the bill.

No, and rightly so. That is properly placed in secondary legislation.

I have another question, to which Miss Samuel may want to contribute. Who should bear the cost of the independent actuary? Sheriff Principal Taylor’s review recommends that the pursuers’ solicitor should pay for the actuary. Do you think that they should be able to claim that cost as a judicial expense when the case is won and, if so, why?

It should not be charged to the pursuer. It should be paid for by the solicitor. Whether it then becomes a legitimate part of a judicial account, I really do not know. It is some years since I have been involved in the principles of what is and is not recoverable, so I am afraid that I cannot help you there.

However, I can say this in relation to the actuary recommendation and its genesis. I went about and spoke to a considerable number of firms for both pursuers and defenders, and one pursuer’s firm told me that, very often, great pressure is brought to bear upon a pursuer to accept a lump sum when a periodical payment would be far more advantageous to them. The pressure comes from family members who see the opportunity for a large pot of money—and it has to be said that some pursuers also see the attraction of having a large pot of money available to them. It was out of that discussion that the solicitors told me that, in those circumstances, they send the client to an actuary. They want the actuary to give independent advice, and hope that it will be that the pursuer should accept a periodical payment. It also has the advantage of protecting the pursuer from subsequent criticism. The idea of going to an actuary was not dreamed up by me; it came from the profession.

In one of the committee’s earlier evidence sessions, Mr Stevenson said, “I could add up a few sums and call myself an actuary.” I have to confess that, at the time of drafting the report, I thought that “actuary” was a protected term. It is not, and to reflect that in the bill, a definition will have to be put in that an actuary will require to be a chartered actuary or a member of the Institute and Faculty of Actuaries.

Ms Samuel, do you have a view on actuaries?

No.

Okay—fair enough.

Liam Kerr has a supplementary question.

Going back to Rona Mackay’s question about future loss, it has been suggested to the committee that not protecting future loss could lead to overall award inflation as courts and negotiators will ensure that the pursuer gets the full amount to which they have been judged to be entitled. How do you respond to that?

I think that there is zero chance of there being damages inflation as a consequence of the proposals. The reason why I say that is that the judiciary does not go about with its head in the sand. I am pleased to say that people saying, “Who are the Beatles?” is a thing of the past. The judiciary knows that the litigations that come before it are being funded by damages-based agreements. In the case of Powell back in 2011, it said that claims management companies perform a useful function and damages-based agreements are a good thing. It knows that a percentage of the damages are presently going to solicitors, and we have not had any inflation of claims to date. I do not think that damages-based agreements will result in a significant rise in claims. We have seen that rise because DBAs have been popular over the past half dozen years or so.

10:30  

I can give you a definition of an actuary: someone who found accountancy too exciting. However, that probably will not do for our purposes.

On section 8, which relates to the restriction on the pursuer’s liability for expenses in personal injury claims, I want to lay out a modest scenario that I have previously suggested. A guy steps out of his Rolls-Royce and is run down and severely injured by a cyclist. The cyclist is about to pay off his mortgage or has already done so, but he has a limited income—in other words, he is asset rich and income poor. It might be worth pursuing him for a damages claim, but given that in such circumstances the pursuer is fundamentally likely to be the wealthier of the two, should the pursuer have the option of knowing that it will always be the defender who will have to pick up the pursuer’s legal costs? Section 8(2) really does not address that, because the assumption is that the defender is a big insurance company and the pursuer a wee person. Surely there are circumstances in which that will not actually be the case.

The answer to your question is that if the defender is a man of straw the pursuer will not raise proceedings. After all, there is no point in obtaining a court award that cannot be enforced.

Forgive me, but I am positing a situation in which the defender might have a modest income but, given the modern world, their house, which might have been quite affordable to them when they purchased it, say, 30 years ago, might, if we are talking about Edinburgh, be worth something of the order of £250,000 or £300,000. They are a bit removed from being a man of straw and might well be worth pursuing, but the effects on the person would be disproportionate to the benefit that would be gained by the pursuer, if they were an extremely wealthy person. I just wonder whether the bill should be adapted to constrain the availability of qualified one-way costs shifting more than it does.

The difficulty in constraining it as you suggest is that that will remove the certainty provided by requiring the pursuer to behave himself. The problem at the moment is that, although successful defenders in personal injury cases rarely recover their expenses, the solicitor advising the pursuer has to act responsibly and say, “I cannot guarantee that you will not be faced with a large adverse award of expenses that will probably bankrupt you.” In such circumstances, the pursuer—not surprisingly—backs off.

I note the example given by, I think, the Faculty of Advocates with regard to restricting the circumstances in which qualified one-way costs shifting would apply to those parties who could be found liable to make an interim award of damages. I think that it mentioned those who are insured and public bodies, and there is a third element that escapes me just now. The difficulty with that is that you could end up with parties not bothering to insure themselves when they ought to or with parties taking on a much higher excess in order to pay a much lower premium and thereby making themselves, in effect, self-insured.

You could find parties who have policies—so QOCS would apply—but who have breached the terms of their policy with the insurers, such as the obligation for fidelity. As a consequence, one-way costs shifting would not be available in circumstances in which it should be available.

The example that you posit, sir, is one that I cannot say is impossible, but it is de minimis. We can look to England and Wales, where the rules of court are the same as what is proposed here, to find out what has happened there. We have heard of no difficulties with qualified one-way costs shifting being operated as it is proposed to be operated here. The lady to my right, Elaine Samuel, has spent a lot of time recently trying to find out what problems there might be in England and Wales as a consequence, and multiple Google searches have not come up with any answers. Surprisingly, when I read the evidence from the insurance lobby that was given to you back in September, I did not see any red flags being waved.

That is helpful.

My first question is about the tests in the bill that relate to the loss of QOCS protection. Three situations are laid out in the bill in which QOCS would be lost, including fraudulent representation among others. The evidence that we have received has been split between pursuers who think that the tests are too strict and defenders who think that they do not go far enough and will not prevent spurious claims.

What are your views on that, particularly the tests laid out in the bill in relation to fraud? Does the bill implement what you recommended in your report?

I do not think that the bill implements what I recommended in my report. Section 8(4)(a) says:

“makes a fraudulent representation in connection with the proceedings”,

whereas my preference would be for the wording to be:

“has acted fraudulently in connection with the proceedings”.

“Fraudulent representation” involves word of mouth; fraud can take place through actions.

The suggestion that was made to you that, if one stayed with “fraudulent representation” one should at least define it, is, frankly, nonsense. The law of Scotland has known what fraud is for many years; it was decided back in the 19th century that

“fraud is a machination or contrivance to deceive by words or acts”—

that comes from Bell’s Principles.

The suggestion that one could enumerate the circumstances in which fraud would be said to have taken place is a non-starter. I had to look out some really old legal textbooks, but the 11th edition of Gloag and Henderson said:

“it is impossible to enumerate the various words or acts which the law will regard as fraudulent”.

I have dealt there with not just the wording, but the nonsense that you have heard from others.

Therefore, I am not in line with the pursuers’ lobby for section 8(4)(a). However, I am in line with them in their criticism of 8(4)(b), because I do not think that that bar is high enough. Wednesbury unreasonableness was what I recommended, and I think that the formula that Mr di Rollo suggested to you came very close to being what I would choose to have there. I tweaked his formula ever so slightly. I suggest that, as an alternative, it should read, “if, in the opinion of the court, the pursuer’s decision to raise proceedings, or their subsequent conduct, is so manifestly unreasonable that it would be just and equitable to make an award of expenses against the pursuer”. Therefore, I would raise the bar.

I think that section 8(4)(c), which is on dealing with an abuse of process, is okay.

My report recommended another set of circumstances in which qualified one-way costs shifting should not apply, which is in the event that a case is summarily dismissed or, to use an expression from England, “struck out”. Much has been said here—rightly—about the potential for frivolous claims being brought.

In my opinion, there are two reasons why frivolous claims will not be brought. One is that you would need to persuade a solicitor to pick up the cost of his time, the fees and the outlays, with little prospect of recovery.

Secondly, if the action raised is of no merit, there is a facility in the court, which was introduced about five years ago following the civil courts review, whereby a defender can say to the court, “This action has no merit—strike it out.” In those circumstances, the benefit of qualified one-way costs shifting is lost, and should be lost. Therefore, I would add another element to section 8(4)—it could be section 8(4)(d).

Finally, in the session that the committee had with the insurance lobby, it was said by one of their number that even though the pursuer did not beat a tender, qualified one-way costs shifting continued to apply. Well, not in my world, it does not, nor in the report that I made. I accept entirely the bill team’s rationale that dealing with tenders and their nuances should be in secondary legislation, because we do not want to start fiddling with the common law in an act of Parliament. I am persuaded that qualified one-way costs shifting should not be available, and should be specified as not being available, in the event that the pursuer has failed to beat a tender.

You touched on a few of my other questions and, in particular, on the test in relation to unreasonable behaviour. What you said about spurious claims echoed the evidence that we heard from solicitors, who said that they would not take on a case if they thought that it would not get anywhere.

I did a little exercise to see the sort of outlays that solicitors have to pay. At present, according to the Scottish Courts and Tribunals Service website, there has to be an outlay of £214 to raise an action. Every time that there is a motion, each party has to pay £54 just to enrol the motion. Further, they have to pay £77 per half hour for the proceedings. Under a damages-based agreement, those payments have to come out of the solicitor’s pocket. That is before we start looking at the costs of medical reports and experts’ reports, all of which will be in the hundreds, if not the thousands, of pounds. That is a pretty strong deterrent for frivolous claims, taken with the knowledge that the defender can come into court and move a summary dismissal or, in the vernacular, “strike out” the action.

Thank you; that was helpful. You touched on tenders. Should that process be more clearly defined in the bill?

10:45  

No, I do not think that what I propose in regard to tenders should be dealt with in the bill, because that is getting into more technical detail. I think that that should properly be in an act of sederunt, but one line could be added to the bill. Section 8(4) says that

“a person conducts civil proceedings in an appropriate manner unless the person—”

does various things. We might say that QOCS flies off in the event that “the person—fails to beat a pursuer’s tender”. I hesitate to draft on the hoof, but something like that.

Okay. Thank you very much.

I will go back to the Wednesbury test. Would it be your position that, as it stands, the bill might catch a weak case, as opposed to the Wednesbury test that a decision is so unreasonable that no reasonable person could have reached it? Would the wording that you have suggested meet that test?

Yes, I think so.

Okay, thank you.

Good morning. I will return to an issue that you raised in your initial response to Liam Kerr in relation to claims management companies. One of the red flags that has been raised south of the border about QOCS relates to the regulation of claims management companies. Such regulation will certainly not be in place at the outset in Scotland.

The Government bill team acknowledged that issue in its evidence to us, and we have since had correspondence that suggests that the Government may look to piggy-back on the Financial Guidance and Claims Bill that is being considered at United Kingdom level. What are your thoughts about the advisability of implementing the bill’s provisions on QOCS in the absence of such regulation, which could be achieved either through the UK bill or through separate legislation flowing from the on-going review?

I understand why the regulation of claims management companies might be dealt with other than in the bill. For present purposes, when we are talking about damages-based agreements, I would be content for the bill simply to have some provision that only a regulated body can enter into a damages-based agreement. That would mean that claims management companies would not be allowed to enter into those agreements until such time as they became regulated. However, my recommendation is that claims management companies fall to be regulated—it is an essential element of the report.

That certainly seemed to be the hint that the Scottish Government officials were giving us when they were setting out the objectives of the bill. To your mind, would it be sufficient to have a reference to regulated organisations or bodies for the time being, which regulation will manifest itself either through the changes to the UK legislation or whatever emerges from the Government’s on-going review?

Yes, it would be a holding element. Unregulated companies would not be allowed to enter into damages-based agreements and take 20 or 30 per cent from all loss. I actually think that most claims management companies in Scotland will disappear, because the vast majority are simply fictions—they are firms of solicitors who have set up their own tame claims management company. The ownership of the firm of solicitors is the same as that of the claims management company.

That is helpful. Thank you.

Defender representatives have argued that the provisions on QOCS and damages-based agreements will tip the balance too far towards unscrupulous pursuers unless other controls are introduced, such as fixed expenses or more extensive pre-action protocols. Do you agree with those concerns?

Pre-action protocols undoubtedly assist in weeding out cases that are capable of settlement before they get to court. I confess that I am not completely up to speed on existing pre-action protocols, but, in general, they are worth while. Just now they are mandatory in all cases up to a value of £25,000, but I think that if the system is working you might consider extending it to cases of £50,000 or £100,000. I would have thought that a role of the Scottish Civil Justice Council would be to monitor these aspects and decide at what level the mandatory pre-action protocol should kick in and the sorts of actions it should cover.

Fixed fees are a bit of an unknown quantity. I dipped my toe in that water by suggesting that, in what was then to be a new simplified procedure, the fees should be fixed, and I would have liked to have seen the system in operation before I ventured an opinion on whether it worked and therefore should be rolled out further. As a general concept, though, I like the idea. Such a system operates very successfully in one of the patent courts in London—you can find it in my report somewhere. One of the report’s key watchwords was predictability, and that is what fixed fees bring about. As I said, I like the idea of them, but I am not sure that I would necessarily tie them in with qualified one-way costs shifting.

In fact, I recommend in the report that there be budgeting of litigations; I appreciate that that is nothing to do with you, but it might give you the tenor of where I am going with this. At the outset in a commercial action, each party should set out what it believes to be the cost of the action and get the court to approve it; the court might say, “I don’t like this” or “I don’t like that”, and the parties will be held to that for the future. That, too, provides predictability. I find it unacceptable in this day and age for a client to ask a lawyer, “How much will this litigation cost me?”, only for the lawyer to reply, “I haven’t a clue. How long is a piece of string?” That is just not acceptable and there are ways around it.

Do you have any comments on cold calling by claims management companies? Most of these things will disappear, but there is still that element to deal with.

Cold calling is the biggest mischief of claims management companies. We can go back to several sources, including Lord Justice Jackson; the Conservative peer Lord Young of Graffham, who carried out an examination of claims management companies; and the Legal Services Board in England, which did the same thing. Save for cold calling, they thought that such companies played a useful role in the process.

My report, however, recommends that claims management companies—or anyone, for that matter—not be permitted to cold call. Having a regulator in place helps in that respect. I also recommend that a professional duty be placed on a solicitor to satisfy himself that, before a case is referred to him by a claims management company, it has not been obtained through cold calling. That will require the Law Society to firm up its professional guidance provisions to ensure that if a solicitor accepts such a case without making reasonable inquiry as to whether it was obtained through cold calling, it will be professional misconduct.

I also suggest that only regulated bodies be entitled to charge a referral fee. After all, what incentive will there be for someone to acquire a piece of business by cold calling if the regulator is going to come down on top of them?

That would avoid any problems if the Law Society decided not to implement that; they have not committed to inquiring if the referral came as a result of cold calling. However, if only regulated bodies—

I understand that the same bill as you are praying in aid in Westminster in relation to the regulation of claims management companies will legislate for a ban on cold calling.

Therefore, one way or another, we hope that cold calling will be caught.

We hope so. It is the bane of all our lives, is it not?

It certainly is.

Good morning, Sheriff Principal Taylor. I will ask about third-party litigation funding. You will know that there is an emerging market in England for investors to fund claims in return for a share of compensation. The bill will make it impossible for third-party funders to be found liable for expenses. The Government has said that it is its intention to catch only commercial third-party funders, but we have heard in evidence from trade unions, in particular, that there is concern that trade unions could be caught by the provision. Could you clarify for us who the recommendation on liability of third-party funders is specifically meant to catch?

It is intended that only the venture capitalist that comes in to fund a commercial action could find itself liable for the adverse costs in a litigation. A trade union should not be caught and neither should a solicitor who provides a damages-based agreement.

My understanding from a chat yesterday with one of the bill team is that further definition will be provided to bring about what I think you and I would both choose.

Your recommendation was that there should be a voluntary code of practice for third-party funders.

Yes—as there is in England and Wales.

There is no provision for such a code in the bill. However, your understanding is that something will be put forward.

I think that there will simply be a change in a definition in existing legislation, which will make it clear that trade unions and solicitors that enter into damage-based agreements will not be caught. I do not think that it will go as far as you suggest, with a requirement that there be a code of conduct.

Clarity in the bill would certainly be helpful for trade unions and no win, no fee solicitors.

That would certainly help.

Section 10 of the bill includes requirements on transparency of funding arrangements. Could you confirm whether you intend that those will apply to all parties to a civil court action, and not just to third-party funders? Your recommendation was that all parties to civil litigation should be required to disclose to others involved how the court action is being funded.

Yes, and I stick by that.

Does that recommendation include trade unions and all funders?

Yes. I think that there should be disclosure of how actions have been funded.

Thank you. That is very helpful.

I will ask about the definition that you provided of “professional funder”, which seems to me to catch it quite nicely. The definition is:

“A funder, motivated by a desire to make a profit, who effectively purchases a stake in the outcome of a litigation”.

That is in the definitions section.

Would it serve the purpose if that definition were to replace the one in the bill?

Give me one second; I will look it up.

It is in paragraph 57, in chapter 11.

I am in the glossary at the beginning, which says:

“The funding of litigation by a party who has no pre-existing interest in the litigation, usually on the basis that (i) the funder will be paid out of the proceeds of any amounts recovered as a consequence of the litigation, often expressed as a percentage of the sum recovered; and (ii) the funder is not entitled to payment should the claim fail.”

That does not help us, particularly. Could you give me the number of the paragraph again?

11:00  

It is in paragraph 57 of chapter 11 of your review report.

It would be a bit embarrassing if I had to go back on that now.

“A professional funder who finances part of a pursuer’s—”

The definition starts:

“A funder, motivated by a desire to make a profit, who effectively purchases a stake in the outcome of a litigation”.

It is the second sentence in paragraph 57.

I think that the definition is fine. It meets the point, does it not?

Yes, I think so. I think that it is excellent.

I have a brief supplementary question. I would like to take you back to the start and to the basis of the whole process. In paragraph 43 of chapter 8 of the report, you talk about individuals being

“put off from pursuing legitimate claims for fear of an award of expenses against them.”

Do you have any idea how many such pursuers exist? Is there evidence that fear of an award against them is putting them off?

This question has just sprung to mind. If the claim is “legitimate”, to use the word in your report, why would an individual have an award for costs made against them? Should not the solicitor say, “You’re okay on this—go forward”?

From my time in private practice, I can say that there is no doubt in my mind that the fear of an adverse award of costs inhibits people from exercising their legal rights.

I can also speak to that personally. I had a claim that was valued at £30,000 in which my prospects of success were probably about 80 per cent. I settled my action at £10,000—one third of what it was worth—and I did that entirely on the basis that I thought that I had before-the-event insurance, but did not, which was my fault. An award of expenses of well into six figures, which is what it would have taken to litigate the £30,000 claim, was not in my or my family’s interests, so that deterred me from litigating. That fear has certainly deterred a lot of my clients from litigating, so I have absolutely no doubt that it is a deterrent.

That deals with part of your question. I am sorry: what was the other part?

The second question just bounced into my mind. In paragraph 43, you talk about “pursuing legitimate claims” but, if a claim is really legitimate, why would there be an award of costs against the pursuer?

A solicitor might think that the claim is legitimate at the outset. The pursuer will go to see them in their office and give them one set of facts. The solicitor might be perfectly honest in his assessment of those facts, but some witnesses are not very good at remembering what happened two or three weeks ago, particularly if there has been some trauma. In fact, quite a lot of research has been carried out on the effect of trauma on memory. The solicitor might be told that it is a pretty strong case and so takes it on, but the assessment of its prospects of success must be kept under continuous monitoring, because they change all the time. The case might start off as a good one, but cases can easily turn very poor. The damages-based agreements into which solicitors enter make provision for them to be able to back out if things reach the stage at which the case is no longer viable. Have I answered your question?

With very great respect, Sheriff Principal Taylor, I am not sure that you have. What you said is that individuals are put off, so they make a decision themselves not to pursue a legitimate claim.

Yes.

When a person presents at the solicitor, they might believe that they have a legitimate claim, but are put off because the solicitor says, “I’ve heard your side of the tale and it seems to be a legitimate case based on the facts as you have presented them. This is what it is going to cost.” At that stage—

No. It is not usually at that stage that it happens.

At what stage are people usually put off pursuing a legitimate claim?

That happens when the solicitor realises that negotiation will not produce a result and they will therefore have to go to court. The clock only starts ticking for an adverse award of costs when you get into court.

In the circumstances that Liam Kerr has suggested, the solicitor would write to the alleged wrongdoer and then, I would hope, a negotiation would ensue. By that time, both sides will have a fairer idea of how the land lies; rarely is there a monopoly of right on one party. At the point at which they have to go into court because the negotiation has proved unfruitful, the solicitor has to tell the person that, if they lose, they run the risk of a severe adverse award of expenses. In many cases, that could bankrupt the individual.

Two of your recommendations that are not in the bill are the additional fee—the extra amount of judicial expenses that a judge can award where the case has been particularly complex or time-consuming—and the suggestion that additional fees should continue to be decided at the end of the case, but limited to 100 per cent uplift of the judicial expense amount. Should those be in the bill or regulated in some other way?

Those are probably best dealt with by secondary legislation.

They should be built in to secondary legislation.

Yes.

I also have a suggestion about when a judge is asked to make a decision about an additional fee. A number of factors—about half a dozen—have to be taken into account, including the complexity of the case. I cannot remember them all. The provision should be extended to require the judge to consider the extent by which the pursuer’s solicitor is being remunerated by way of a success fee.

That is helpful. You also recommended that the solicitor should be required to discuss all potential funding options with the client, including legal aid or an existing insurance policy, and to write to the client with their recommendation and the reasons for it. Should that suggestion be considered, if not included in the bill?

Lord Justice Jackson recommended that a solicitor should, before they enter a damages-based agreement, have to refer the client to an independent solicitor to make sure that all the pros and cons have been properly explained. I thought that that would be overkill and would involve too much administration, so my version is watered down from what Jackson recommended. It is important to realise that a damages-based agreement does not remove any other funding mechanism from the legal landscape; it is additional and might not be best suited to a particular pursuer.

That is very helpful.

I should have tried to work into one answer that we already have qualified one-way costs shifting in Scotland. It has been in operation for decades and involves the legal aid fund. A legally aided pursuer who loses an action and might, therefore, otherwise have an adverse award of expenses made against them, does not have an adverse award of expenses made against them. In very exceptional circumstances, the successful unassisted party can obtain payment of expenses out of the legal aid fund, but—as I am sure members appreciate—that applies in very limited circumstances. Therefore, we do not need to wonder how qualified one-way costs shifting will work; we already know how it works, albeit in a limited environment in Scotland.

That will provide huge reassurance to people who are worried about the bill. The committee members all agree that your evidence has been immensely helpful to us. I thank you and Ms Samuel for attending today’s meeting.

I suspend the meeting briefly to allow for a change of witnesses.

11:11 Meeting suspended.  

11:16 On resuming—